Rick Perry’s Jobs Problem, Part II

Governor Rick Perry’s office called in response to my post on his jobs record last week. His spokesperson, Catherine Frazier, wanted to defend Perry’s business-luring tax credit funds, and I’ll get to that below. But first, some more context on the subject of Texas and job creation, which will be central to the 2012 campaign if Perry gets into the race, as some are reporting is increasingly likely in the wake of Newt Gingrich’s implosion.

The Wall Street Journal’s lead editorial last Friday touted “The Lone Star Jobs Surge” and reported, based on Bureau of Labor Statistics numbers via the Dallas Federal Reserve, that “37% of all net new American jobs since the recovery began were created in Texas.” Texas has created 265,000 “net new jobs” since the recession ended in June 2009 through April 2011, the Journal reported.

Texas’ unemployment rate tells a different story. It has gone up from 7.7% to 8.0% over that same period. And by that measure, Texas has done worse than the rest of the country since the peak of national unemployment in October 2009: that month the U.S. rate was 10.1% and Texas was 8.2%. Texas peaked at 8.3% last December, dropping to 8.0% in April, while the national rate has dropped a point since it’s peak to 9.1%

There are a few reasons for the discrepancy, says Pia Orrenius, an economist at the Dallas Fed. First, demography: “We had much higher labor force growth that continued throughout the recession,” she says, “Job creation was soaking up job growth.” Also, job creation and unemployment are measured differently: job creation is based on a payroll survey of businesses, while unemployment is based on a household survey. But overall, says Orrenius, Texas has been outgrowing the nation in jobs since 1990, thanks to its ports, trade with Latin America, its energy and petrochemical sectors and its access to new labor through immigration. The effect of policy on job creation is a source of endless debate, but Texas has relatively low regulatory burdens compared, for example to California, has embraced pro-business tort reform and is a “right-to-work” state. “This state is a job creation machine,” says Orrenius.

What role, if any, do Perry’s taxpayer-funded subsidies for businesses play in Texas’ job creation success? Perry has established several massive tax credit issuing funds designed to lure companies from other states. These include the $412 million Texas Enterprise Fund and the $320 million Texas Emerging Technologies Fund. His office proudly claims the two funds have created nearly 60,000 jobs over the last eight years. “They’ve been immensely important to our state’s economic development,” says Ms. Frazier. “This is about attracting jobs and making Texas a destination for companies to relocate and expand in this state.”

As noted in my last post, the funds have been controversial. They have channeled millions of dollars to companies whose officers or investors are major Perry campaign donors and Perry has allowed them to keep their subsidies in many cases even when they fail to deliver promised jobs. More important for the purposes of judging Perry’s job-creating record, even those that do produce jobs don’t necessarily create long-lasting ones, or increase the state’s overall prosperity.

In a report written for Perry last spring, Prof. Michael Porter of Harvard Business School found that Texas’ overall prosperity growth, as measured by per capita GDP, was eighth slowest in the country from 1998 to 2008. (Orenius says Porter’s growth numbers are low).

Porter says tax credit funds used to lure jobs to one state from another state, often “ultimately don’t support long-term prosperity,” because companies that can move easily “are looking for the best deal and when the deal runs out they move,” taking their jobs with them.

Frazier says there’s a larger purpose served by the funds. “Companies that receive taxpayer dollars are creating and pursuing technologies that are not only going to be good for our state but for the nation and the world in terms of emerging technologies and [for example, cancer] treatments that are going to be essential to improving lives all across the globe,” says Frazier. “Texas is creating a model for the rest of the nation to follow, both on the state level and the federal level,” she says.

To boil it down, Perry is arguing that the proper model for job creation nationwide includes funneling taxpayer money to companies not only to create jobs but also to develop technologies that will better the world, even if that money has a negligible affect on the unemployment rate or overall per capita prosperity. Which sounds a lot like what the rest of the Republican presidential field is criticizing Barack Obama for doing.